<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-KSB/A
AMENDMENT NO. 1
TO
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______________ to _______________.
COMMISSION FILE NUMBER 0-28472
DIGITAL VIDEO SYSTEMS, INC.
(Name of small business issuer in its charter)
DELAWARE 77-0333728
(State of incorporation) (I.R.S. Employer
Identification No.)
2710 WALSH AVENUE, SANTA CLARA, CALIFORNIA 95051
(Address of principal executive offices) (zip code)
Issuer's telephone number: (408) 748-2100
Securities to be registered pursuant
to Section 12(b) of the Act: NONE
Securities to be registered pursuant
to Section 12(g) of the Act: COMMON STOCK
CLASS A WARRANTS
CLASS B WARRANTS
UNITS, EACH CONSISTING OF ONE SHARE OF COMMON
STOCK, ONE CLASS A WARRANT AND ONE CLASS B
WARRANT
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to filing requirements for the past 90 days. YES X
---
NO
---
Check mark indicates that disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
The issuer's revenues for its most recent fiscal year were $14,121,000.
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of June 6, 1997 was approximately $34,145,000.
There were 20,260,079 shares outstanding of registrant's common stock as of
June 6, 1997.
The following documents are incorporated by reference into this report: None
================================================================================
<PAGE>
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
MANAGEMENT OF THE COMPANY
Set forth below is certain information with respect to the directors and
executive officers of the Company as of the date of the filing of this report.
<TABLE>
<CAPTION> DIRECTOR
NAME AGE POSITION SINCE
---- --- -------- --------
<S> <C> <C> <C>
Edmund Y. Sun 48 Chairman of the Board and 1992
Chief Executive Officer
Thomas R. Parkinson (1) 50 President and Chief Operating Officer --
Robert B. Pfannkuch(2) 62 Director 1996
Janis P. Gemignani 49 Director 1985
Sung Hee Lee 42 Director 1994
Sanford C. Sigoloff 66 Director 1996
Philip B. Smith 61 Director 1995
Joseph F. Troy 58 Director 1996
Seth Halio 35 Controller and Secretary --
</TABLE>
_______________
(1) Mr. Parkinson was appointed President and Chief Operating Officer of the
Company, effective as of April 15, 1997
(2) Mr. Pfannkuch resigned as President, effective as of April 14, 1997.
EDMUND Y. SUN has served as the Company's Chairman of the Board and Chief
Executive Officer since its inception in October 1992 and is the founder of the
Company. Dr. Sun served as President of the Company from October 1992 to May
1996. Dr. Sun founded C-Cube Microsystems Inc. ("C-Cube"), a public company
involved in the development of full-color still and motion picture compression
technology, and was its Chief Executive Officer from March 1989 to September
1991, and Chairman of the Board from August 1988 until April 1993. Dr. Sun was
also a founder, Vice President, and Chief Technical Officer of Weitek
Corporation, a public company involved in high-speed three-dimensional shaded
graphics systems and the use of high speed chips in various computer
applications. Dr. Sun is a director of CSS Laboratories, Inc., a privately-held
company involved in computer hardware. Dr. Sun has a Ph.D. in Applied Physics,
and an M.S. in Electrical Engineering from the California Institute of
Technology, and a B.S. in Electrophysics from the National Chiao-Tung University
in Taiwan.
THOMAS R. PARKINSON has served as the Company's President and Chief
Operating Officer since April 15, 1997. In 1993, Mr. Parkinson served as a
consultant for Shape, Inc., a manufacturer of home video entertainment and
computer related companies and, from 1994 to April 1997 served as that company's
President and Chief Executive Officer. In 1992, Mr. Parkinson founded Technology
Vision, Inc., a provider of management services.
ROBERT B. PFANNKUCH has served as a director of the Company since May 1996
and served as the President of the Company from May 1996 to April 1997. Since
April 1997, Mr. Pfannkuch has served as President for Panasonic Disc Services
Corporation. From March 1996 to May 1996 he served as a consultant
2
<PAGE>
to the Company. Mr. Pfannkuch has been the President of Telefuture Partners, a
consulting firm, since January 1990. He was the Chairman and Chief Executive
Officer of Rank Video Services America (formerly Bell & Howell/Columbia
Pictures/Paramount Video Services) from 1981 to January 1990. From 1974 to
1981, he was the President of Bell & Howell Video Group and Vice President of
Bell & Howell. Mr. Pfannkuch received a B.S. from the University of
Connecticut.
JANIS P. GEMIGNANI has been a director of the Company since August 1995 and
served as the Chief Financial Officer, Vice President and Secretary of the
Company from August 1995 until October 1996. Ms. Gemignani was a co-founder and
from 1984 to August 1995, Chief Financial Officer of Vertical Software, Inc., a
value-added reseller of computer hardware and software located in Houston,
Texas. Ms. Gemignani earned her B.A. degree with honors from the University of
West Florida. Ms. Gemignani is a Certified Public Accountant.
SUNG HEE LEE has been a director of the Company since March 1994. Mr. Lee
founded and has been the Director of the Multimedia Business Division of Hyundai
Electronics Industries Co., Ltd. ("Hyundai") since March 1993. From May 1991
until March 1993, Mr. Lee served as a Senior Manager of the Marketing Department
of Hyundai's Information Systems Business Sector. From January 1989 until May
1991, he served as a Senior Manager of Hyundai's Computer Export Department. He
was also responsible for establishing the Hyundai Electronics America subsidiary
in the United States. Mr. Lee is a member of the Board of Directors of Wanyan
Electronics Co., Ltd., in China. He received his M.S. in Industrial Engineering
from the Korea Advanced Institute of Science & Technology. Mr. Lee serves as
the representative of Hyundai on the Company's Board of Directors.
SANFORD C. SIGOLOFF has served as a director of the Company since June
1996. Mr. Sigoloff has been Chairman of the Board, President and Chief
Executive Officer of Sigoloff & Associates, Inc. (a management consulting
company) since 1989. He served as Chief Executive Officer of L.J. Hooker
Corporation (a retail conglomerate) from August 1989 to June 1992. From March
1982 until 1988, Mr. Sigoloff served as Chairman of the Board, President and
Chief Executive Officer of Wickes Companies, Inc. (a furniture retail chain).
Mr. Sigoloff is a director of Sun America, Inc., Kaufman and Broad Home
Corporation, ChatCom, Inc. and Movie Gallery, Inc. which are public companies.
Mr. Sigoloff is an adjunct full professor at the John E. Anderson Graduate
School of Management at the University of California at Los Angeles.
PHILIP B. SMITH has served as a director of the Company since November
1995. Mr. Smith has been a Vice Chairman of the Board of Spencer Trask
Securities Incorporated since 1991. He was formerly a Managing Director of
Prudential Securities in their merchant banking division from 1985 to 1991. Mr.
Smith is a founding General Partner of Lawrence Venture Associates, a venture
capital limited partnership headquartered in New York City and was the General
Partner from 1984 to 1985. From 1981 to 1984, he served as Executive Vice
President and Group Executive of the international banking and worldwide
corporations group at Irving Trust Company. Prior to joining Irving Trust
Company, he was at Citibank for 15 years, where he founded Citicorp Venture
Capital and was its President and Chief Executive Officer. Since 1988, Mr.
Smith has also been the managing general partner of Private Equity Partnership,
L.P. Mr. Smith is a director of Movie Gallery, Inc., DenAmerica Corp., ChatCom,
Inc. and KLS Enviro Resources, Inc., all publicly-held companies. Mr. Smith is
an adjunct professor at Columbia University Graduate School of Business. He
holds a B.S.E. from Princeton University and an M.B.A. from Harvard University.
JOSEPH F. TROY has served as a director of the Company since May 1996. Mr.
Troy is the founder and has been a member of the law firm of Troy & Gould
Professional Corporation since May 1970. He is a director of Movie Gallery,
Inc., a publicly-held company. Mr. Troy holds a B.A. from Yale University and
an LL.B. from Harvard University.
SETH HALIO has served as Controller of the Company since February 1997 and
Secretary of the Company since March 1997. From 1994 to 1997, Mr. Halio was
employed at California Microwave, Inc., most recently as Director of Accounting
and
3
<PAGE>
Finance. From 1986 to 1994, Mr. Halio was employed at Ernst & Young, most
recently as senior manager. Mr. Halio resigned from the Company, effective as
of August 16, 1997.
Directors serve until the next annual meeting or until their successors are
elected or appointed. Officers are elected by and serve at the discretion of
the Board of Directors. There are no family relationships among the officers or
directors of the Company.
Pursuant to the underwriting agreement entered into by the Company in
connection with the initial public offering of the Company's securities in May
1996 (the "IPO"), the Company agreed for a period of five years commencing on
May 9, 1996, if requested by the underwriter, D.H. Blair Investment Banking
Corp. (the "Underwriter"), to nominate a designee of the Underwriter who is
reasonably acceptable to the Company to the Company's Board of Directors. To
date, the Underwriter has not designated a director.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and certain of its officers, and persons who own more than 10% of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "Commission"). Officers, directors and greater than 10% stockholders are
required by the Commission's regulations to furnish the Company with copies of
all Section 16(a) forms they file. Based solely upon a review of the copies of
the forms furnished to the Company and the representations made by the reporting
persons to the Company, the Company believes that during the fiscal year ended
March 31, 1997, its directors, officers and 10% stockholders complied with all
filing requirements under Section 16(a) of the Exchange Act, with the exception
of the following: Mr. Sun filed a late Form 5 to report the acquisition of
shares in connection with the acquisition by the Company (the "ViComp
Acquisition") of all of the outstanding capital stock of ViComp Technology, Inc.
("ViComp"), which he failed to report on a Form 4. Mr. Sigoloff filed a late
Form 5 to report the receipt of options to purchase 136,608 shares of Common
Stock, which he failed to report on a Form 4. Mr. Pfannkuch filed a late Form 5
to report the cancellation of options to purchase 400,000 shares of Common
Stock, which he failed to report on a Form 4. Mr. Halio filed a late Form 3 to
report the receipt of options to purchase 50,000 shares of Common Stock.
4
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth the compensation for the fiscal year ended
March 31, 1997, the twelve months ended March, 31, 1996 and the fiscal year
ended December 31, 1995 paid by the Company to its Chief Executive Officer and
the other executive officer of the Company who earned in excess of $100,000
(collectively, the "Named Executive Officers") based on salary and bonus for the
fiscal year ended March 31, 1997:
<TABLE>
<CAPTION>
Long-Term
Compensation
ANNUAL COMPENSATION(1) Awards
-------------------------------- ---------------
Other Securities
Name and Fiscal Year Annual Underlying
Principal Position Ended(2) Salary($) Compensation Options (#)
- ------------------------------- -------------------- --------- --------------- ---------------
<S> <C> <C> <C> <C>
Dr. Edmund Y. Sun(3) March 31, 1997 $159,751 $ -- $ --
Chairman of the Board March 31, 1996 131,709 -- --
and Chief Executive Officer December 31, 1995 125,485 -- --
Robert Pfannkuch, March 31, 1997 128,652 $10,000(5) 750,000(6)
President(4) March 31, 1996 -- __ --
December 31, 1995 -- -- --
</TABLE>
___________
(1) The compensation described in this table does not include medical
insurance, retirement benefits and other benefits received by the foregoing
executive officers which are available generally to all employees of the
Company and certain perquisites and other personal benefits received by the
foregoing executive officers of the Company, the value of which did not
exceed the lesser of $50,000 or 10% of the executive officer's cash
compensation in the table.
(2) In June 1996, the Company changed its fiscal year end from December 31 to
March 31. The compensation reported for Dr. Sun for the twelve months
ended March 31, 1996 includes a portion ($98,782) of the amount reported
for the year ended December 31, 1995.
(3) Dr. Sun also served as President of the Company during the fiscal year
ended December 31, 1995 and through May 1996.
(4) Mr. Pfannkuch resigned as President of the Company effective April 14,
1997. Mr. Pfannkuch continues to serve as a director of the Company.
(5) Represents payments made to Mr. Pfannkuch as a consultant prior to his
employment by the Company as President.
(6) Includes 400,000 options which were cancelled as of March 26, 1997.
5
<PAGE>
The following table provides information on stock options granted in the
fiscal year ended March 31, 1997:
OPTIONS GRANTED IN FISCAL YEAR ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------------------------
NUMBER OF PERCENTAGE OF TOTAL
SECURITIES OPTIONS GRANTED TO
UNDERLYING OPTIONS EMPLOYEES IN EXERCISE OR BASE EXPIRATION
NAME GRANTED FISCAL YEAR PRICE (PER SHARE) DATE
- ---------------------- --------------------- -------------------- ----------------- ------------
<S> <C> <C> <C> <C>
Dr. Edmund Y. Sun -- -- -- --
Robert B. Pfannkuch 400,000(1) 20.7% $3.50 (1)
187,500(2) 9.7% $3.50 May 8, 2001
162,500(2) 8.4% $3.50 May 8, 2001
</TABLE>
____________________
(1) All of such options were canceled effective as of March 26, 1997.
(2) Such options vest and become exercisable on a pro rata basis over 48 months
for each full month of completed service by Mr. Pfannkuch as a director of
the Company after May 8, 1997. 125,000 and 108,333 of such options,
respectively have been deposited in escrow pursuant to an Escrow Agreement
between the Company, American Stock Transfer and Trust Company and certain
of the Company's stockholders and optionholders. Such options (as well as
the shares of Common Stock issuable upon exercise of such options) are
subject to forfeiture and cancellation unless and until certain minimum
pre-tax income or stock price levels for the Company are met. See
"Security Ownership of Certain Beneficial Owners and Management - Escrow
Securities."
DIRECTOR COMPENSATION
Directors (other than directors who are employees of the Company and who
receive no compensation for serving on the Board of Directors) receive $15,000
per year as compensation for serving on the Board of Directors and are also
entitled to participate in the Company's stock option plans and from time to
time to receive grants of options thereunder to purchase shares of the Company's
Common Stock. During the fiscal year ended March 31, 1997, the following option
grants were made pursuant to the Company's 1993 Amended and Restated Stock
Option Plan (the "1993 Stock Option Plan"): Joseph F. Troy: options to
purchase 136,608 shares of Common Stock at $3.50 per share; Robert B. Pfannkuch;
options to purchase 750,000 shares of Common Stock at $3.50 per share, pursuant
to Mr. Pfannkuch's Consulting and Employment Agreement (of which 400,000 options
were subsequently cancelled); Sanford C. Sigoloff: options to purchase 136,608
shares of Common Stock at $7.25 per share.
EMPLOYMENT AND CONSULTING AGREEMENTS
The Company entered into an employment agreement (the "Sun Employment
Agreement") with Dr. Sun, the Company's founder, Chairman of the Board and Chief
Executive Officer, in March 1996. The term of the Sun Employment Agreement
commenced in May 1996 and will expire on March 31, 2001; provided, however, that
-------- -------
the Sun Employment Agreement can be terminated by either party after March 31,
1999, if all of the Escrow Securities (as defined herein) have been released.
The Sun Employment Agreement provides that in consideration for Dr. Sun's
services, he is to be paid a salary of $160,000 during the first year of the
agreement. In addition, he will receive increases in salary and bonuses as
deemed appropriate by the Board of Directors.
6
<PAGE>
The Company entered into a two-year employment agreement dated as of March
28, 1997 with Thomas R. Parkinson, pursuant to which Mr. Parkinson became the
President and Chief Operating Officer of the Company commencing on April 15,
1997. In connection with entering into such agreement, Mr. Parkinson received
five-year options to purchase 400,000 shares of Common Stock at $3.75 per share
under the Company's 1993 Stock Option Plan, of which options to purchase 266,667
shares are Escrow Securities. See "Security Ownership of Certain Beneficial
Owners and Management--Escrow Securities." One-fourth of such options were to
vest and become exercisable after Mr. Parkinson has served as the President of
the Company for one year, and the balance will vest at a monthly rate of 2.083%
over the following 36 months, subject to acceleration of this vesting schedule
or forfeiture of these options under certain circumstances. In addition, Mr.
Parkinson received five-year options to purchase 500,000 shares of Common Stock
at $3.75 per share under the Company's 1996 Stock Option Plan. Such options
vest at a monthly rate of 2.083% over a four-year period commencing on April 30,
1997, subject to acceleration of this vesting schedule or forfeiture of these
options under certain circumstances. Mr. Parkinson receives an annual salary of
$280,000 and will be eligible for an annual performance bonus ranging from
$120,000 to $200,000. Mr. Parkinson's salary and bonus shall be mutually agreed
to by Mr. Parkinson and the Board after the first year. Mr. Parkinson's
employment as President and Chief Operating Officer is renewable at the end of
the initial two-year term by mutual agreement of the parties.
The Company entered into a Consulting and Employment Agreement dated as of
March 15, 1996 with Robert B. Pfannkuch, pursuant to which Mr. Pfannkuch became
a director and the President of the Company in May 1996. Upon entering into
such agreement, Mr. Pfannkuch received five-year options to purchase 750,000
shares of Common Stock at $3.50 per share, of which options to purchase 500,000
shares were designated as Escrow Securities. See "Security Ownership of Certain
Beneficial Owners and Management--Escrow Securities." One-fourth of such
options were to vest and become exercisable after Mr. Pfannkuch had been the
President of the Company for one year, and the balance were to vest and become
exercisable at the rate of 11,719 per month, subject to acceleration of this
vesting schedule or forfeiture of these options under certain circumstances.
Mr. Pfannkuch received an annual salary of $150,000 as President of the Company,
and his employment as President was renewable on a yearly basis by mutual
agreement of the parties. Mr. Pfannkuch terminated his employment as President
in April 1997 but continues to serve as a director of the Company. In
connection with his termination as President, Mr. Pfannkuch and the Company
agreed that his options to purchase 187,500 shares of Common Stock would vest on
May 8, 1997 (provided he continued to serve as a director of the Company through
that date), his options to purchase 162,500 shares of Common Stock will vest on
a pro rata basis over 48 months for each full month of completed service by Mr.
Pfannkuch as a director of the Company after May 8, 1997 and his options to
purchase 400,000 shares of Common Stock would be cancelled. 233,333 of the
foregoing options which were not cancelled are Escrow Securities.
STOCK OPTION PLANS
In October 1993, the Board of Directors approved the Company's 1993 Stock
Option Plan, which plan was subsequently approved by the Company's stockholders
in March 1994. In April 1996, the Board of Directors and the stockholders of
the Company approved the 1993 Amended and Restated Stock Option Plan, which
effected certain amendments to the 1993 Stock Option Plan. The 1993 Stock
Option Plan provides for the grant of options to officers, directors, other key
employees and consultants of the Company to purchase up to an aggregate of
3,762,532 shares of Common Stock. The 1993 Stock Option Plan is administered by
the Board of Directors or a committee of the Board and is currently administered
by the Board of Directors, which has complete discretion to select the optionees
and to establish the terms and conditions of each option, subject to the
provisions of the 1993 Stock Option Plan. Notwithstanding the foregoing, grants
of options to named executive officers may be made only by a committee of
directors who qualify as "outside directors" within the meaning of Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). Options
granted under the 1993 Stock Option Plan may be "incentive stock options" as
defined in Section 422 of the Code, or nonqualified options, and will be
designated as such.
7
<PAGE>
The exercise price of incentive stock options may not be less than 100% of
the fair market value of the Company's Common Stock as of the date of grant
(110% of the fair market value if the grant is to an employee who owns more than
10% of the total combined voting power of all classes of capital stock of the
Company). The Code currently limits to $100,000 the aggregate value of Common
Stock that may be acquired in any one year pursuant to incentive stock options
under the 1993 Stock Option Plan or any other option plan adopted by the
Company. Nonqualified options may be granted under the 1993 Stock Option Plan
at an exercise price less than the fair market value of the Common Stock on the
date of grant. Nonqualified options also may be granted without regard to any
restriction on the amount of Common Stock that may be acquired pursuant to such
options in any one year.
In general, upon termination of employment of an optionee, all options
granted to such person which were not exercisable on the date of such
termination would immediately terminate, and any options that are exercisable
would terminate 90 days (six months in the case of termination by reason of
death or disability) following termination of employment.
Options may not be exercised more than ten years after the grant (five
years after the grant if the grant is an incentive stock option to an employee
who owns more than 10% of the total combined voting power of all classes of
capital stock of the Company). Options granted under the 1993 Stock Option Plan
are not transferable and may be exercised only by the respective grantees during
their lifetime or by their heirs, executors or administrators in the event of
death. Under the 1993 Stock Option Plan, shares subject to cancelled or
terminated options are reserved for subsequently granted options. The number of
options outstanding and the exercise price thereof are subject to adjustment in
the case of certain transactions such as mergers, recapitalizations, stock
splits or stock dividends. The 1993 Stock Option Plan is effective for ten
years, unless sooner terminated or suspended.
During the fiscal year ended March 31, 1997, options to purchase 1,934,216
shares of Common Stock were granted under the 1993 Stock Option Plan."
In September 1996, the Company's Board of Directors approved the Company's
1996 Stock Option Plan, which is subject to stockholder approval. The purpose
of the 1996 Stock Option Plan is to enable the Company to attract and retain
top-quality employees, officers, directors and consultants and to provide such
employees, officers, directors and consultants with an incentive to enhance
stockholder return. The 1996 Stock Option Plan will be effective on the first
day immediately following the date on which the 1996 Stock Option Plan is
approved by the stockholders.
The 1996 Stock Option Plan provides for the grant of options to officers,
directors, other key employees and consultants of the Company to purchase up to
an aggregate of 1,000,000 shares of Common Stock. The 1996 Stock Option Plan is
administered by the Board of Directors or a committee of the Board, and is
currently administered by the Board of Directors, which has complete discretion
to select the optionees and to establish the terms and conditions of each
option, subject to the provisions of the 1996 Stock Option Plan.
Notwithstanding the foregoing, grants of options to executive officers may be
made only by a committee of directors who qualify as "outside directors" within
the meaning of Section 162(m) of the Code. Options granted under the 1996 Stock
Option Plan may be "incentive stock options" as defined in Section 422 of the
Code, or nonqualified options, and will be designated as such.
The exercise price of incentive stock options may not be less than 100% of
the fair market value of the Company's Common Stock as of the date of grant
(110% of the fair market value if the grant is to an employee who owns more than
10% of the total combined voting power of all classes of capital stock of the
Company). The Code currently limits to $100,000 the aggregate value of Common
Stock that may be acquired in any one year pursuant to incentive stock options
under the 1996 Stock Option Plan or any other option plan adopted by the
Company. Nonqualified options may be granted under the 1996 Stock Option Plan
at an exercise price less than the fair market value of the Common Stock on the
date of grant. Nonqualified
8
<PAGE>
options also may be granted without regard to any restriction on the amount of
Common Stock that may be acquired pursuant to such options in any one year.
In general, upon termination of employment of an optionee, all options
granted to such person which were not exercisable on the date of such
termination would immediately terminate, and any options that are exercisable
would terminate 90 days (six months in the case of termination by reason of
death or disability) following termination of employment.
Options may not be exercised more than ten years after the grant (five
years after the grant if the grant is an incentive stock option to an employee
who owns more than 10% of the total combined voting power of all classes of
capital stock of the Company). Options granted under the 1996 Stock Option Plan
are not transferable and may be exercised only by the respective grantees during
their lifetime or by their heirs, executors or administrators in the event of
death. Under the 1996 Stock Option Plan, shares subject to cancelled or
terminated options are reserved for subsequently granted options. The number of
options outstanding and the exercise price thereof are subject to adjustment in
the case of certain transactions such as mergers, recapitalizations, stock
splits or stock dividends. The 1996 Stock Option Plan is effective for ten
years, unless sooner terminated or suspended. The 1996 Stock Option Plan
provides that options covering no more than 500,000 shares of Common Stock may
be granted to any one employee in any twelve month period.
During the fiscal year ended March 31, 1997, options to purchase 689,557
shares of Common Stock were granted under the 1996 Stock Option Plan.
9
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of July 28, 1997, by (i) each person
who is known by the Company to own beneficially more than 5% of the Company's
outstanding Common Stock; (ii) each of the Company's directors; (iii) each of
the Named Executive Officers; and (iv) all officers and directors of the Company
as a group.
<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial Percent of
Name and Address(1) Ownership(2) Ownership
- ----------------------------------------------- -------------- -----------
<S> <C> <C>
Edmund Y. Sun.................................. 7,822,418(3) 39.5%
Thomas R. Parkinson............................ 62,500(4)
Robert B. Pfannkuch............................ 201,042(5) *
Janis Gemignani................................ 134,238(6)
Sung Hee Lee................................... 0(7) *
Philip B. Smith................................ 68,304(8) *
Sanford Sigoloff............................... 45,536(9) *
Joseph F. Troy................................. 51,228(10) *
Seth Halio..................................... 0(11) *
Hyundai Electronics Industries Company, Ltd.... 3,896,999(12) 19.6
10th Floor, Boram Building
705-19, Yeeksam-dong
Kongnam-Ku, Seoul, Korea
All executive officers and directors
as a group (9 persons)........................ 8,385,266 40.2
</TABLE>
____________________
* Less than one percent.
(1) Except as otherwise indicated, the address of each principal stockholder is
c/o the Company at 2710 Walsh Avenue, Santa Clara, California 95051.
(2) Includes the Escrow Securities of such individual or entity. See "--
Escrow Securities." Nature of beneficial ownership of securities is direct
and arises from sole voting power and sole investment power, subject to
community property laws where applicable. Shares underlying options to
purchase Common Stock exercisable within 60 days are deemed to be
outstanding for purposes of calculating the number of shares owned by the
holders of such options.
(3) Includes 281,520 shares of Common Stock acquired by Dr. Sun in the ViComp
Acquisition, all of which have been deposited in escrow and are subject to
cancellation in certain circumstances. Also includes 280,334 shares owned
by Dr. Sun's sons and 21,564 shares owned by Dr. Sun's sister.
(4) Represents options to purchase 62,500 shares of Common Stock. Excludes
options to purchase 837,500 shares of Common Stock which are not
exercisable within 60 days.
(5) Represents options to purchase 201,042 shares of Common Stock. Excludes
options to purchase 148,958 shares of Common Stock which are not
exercisable within 60 days.
(6) Represents options to purchase 134,238 shares of Common Stock. Excludes
options to purchase 104,408 shares of Common Stock which are not
exercisable within 60 days. The address for Janis Gemignani is 373 River
Oak Circle, Suite 1803, San Jose, California 95134.
(7) Although Mr. Lee serves as Hyundai's representative on the Company's Board
of Directors, he does not have any right to vote or dispose of the shares
owned by Hyundai.
10
<PAGE>
(8) Represents options to purchase 68,304 shares of Common Stock. Excludes
options to purchase 68,304 shares of Common Stock which are not exercisable
within 60 days.
(9) Represents options to purchase 45,536 shares of Common Stock. Excludes
options to purchase 91,072 shares of Common Stock which are not exercisable
within 60 days.
(10) Represents options to purchase 51,228 shares of Common Stock. Excludes
options to purchase 85,380 shares of Common Stock which are not exercisable
within 60 days.
(11) Excludes options to purchase 50,000 shares of Common Stock which are not
exercisable within 60 days.
(12) Mong Hun Chung is the Chairman and largest individual shareholder of
Hyundai and may be considered a beneficial owner of such shares.
ESCROW SECURITIES
In connection with the IPO and through March 31, 1997, the holders of the
Company's Common Stock and options to purchase Common Stock placed 8,086,321
shares (the "Escrow Shares") and options to purchase 1,985,656 shares (the
"Escrow Options") and the Company has placed as of this date options issuable
under the 1993 Stock Option Plan to purchase 28,023 shares of Common Stock
(together with the Escrow Options and the Escrow Shares, the "Escrow
Securities") into escrow pursuant to an escrow agreement (the "Escrow
Agreement") with American Stock Transfer & Trust Company, as escrow agent. The
Escrow Securi ties are not assignable or transferable; however, the Escrow
Shares may be voted. Holders of any options in escrow may exercise their options
prior to their release from escrow; however, the shares issuable upon any such
exercise will continue to be held in escrow as Escrow Shares pursuant to the
Escrow Agreement.
All or a portion of the Escrow Securities may be released from escrow based
on the Company's Minimum Pretax Income amounts (as defined and set forth below)
or the trading price of the Company's Common Stock. The Minimum Pretax Income
amounts (i) shall be calculated exclusively of any extraordinary earnings,
including, but not limited to, any charge to income resulting from the release
of the Escrow Securities; and (ii) shall be increased from the amounts
established at the time of the IPO proportionately, with certain limitations, in
the event additional shares of Common Stock or securities convertible into,
exchangeable for or exercisable into Common Stock are issued after the IPO. The
Minimum Pretax Income amounts as originally established at the time of the IPO
are described below.
Of the Escrow Securities, one-half (representing 5,050,000 shares of issued
or issuable shares of Common Stock) will be released from escrow, on a pro rata
basis, if, and only if, one or more of the following conditions are met (none of
such conditions having been met to date):
(i) the Company's net income before provision for income taxes and
exclusive of any extraordinary earnings as audited and determined by the
Company's independent public accountants (the "Minimum Pretax Income") amounts
to at least $10.0 million for the fiscal year ended March 31, 1997.
(ii) the Minimum Pretax Income amounts to at least $15.0 million for the
fiscal year ending March 31, 1998;
(iii) the Minimum Pretax Income amounts to at least $23.0 million for the
fiscal year ending March 31, 1999;
(iv) the Minimum Pretax Income amounts to at least $31.0 million for the
fiscal year ending March 31, 2000;
(v) the Minimum Pretax Income amounts to at least $39.0 million for the
fiscal year ending March 31, 2001;
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(vi) commencing on May 9, 1996 and ending 18 months thereafter, the bid
price of the Company's Common Stock averages in excess of $24.00 per share
(subject to adjustment in the event of any reverse stock splits or other similar
events) for 60 consecutive business days;
(vii) commencing November 9, 1997 and ending 36 months thereafter, the bid
price of the Company's Common Stock averages in excess of $48.00 per share
(subject to adjustment in the event of any reverse stock splits or other similar
events) for 90 consecutive business days; or
(viii) during the periods specified in (vi) or (vii) above, the Company is
acquired by or merged into another entity in a transaction in which the value of
the per share consideration received by the stockholders of the Company on the
date of such transaction or at any time during the applicable period set forth
in (vi) or (vii), respectively, equals or exceeds the applicable levels set
forth in (vi) or (vii), respectively.
The remaining Escrow Securities (representing 5,050,000 shares of issued or
issuable shares of Common Stock) will be released from escrow, on a pro rata
basis, if, and only if, one or more of the following conditions is met (none of
such conditions having been met to date):
(i) the Minimum Pretax Income amounts to at least $15.0 million for the
fiscal year ended March 31, 1997;
(ii) the Minimum Pretax Income amounts to at least $21.0 million for the
fiscal year ending March 31, 1998;
(iii) the Minimum Pretax Income amounts to at least $32.0 million for the
fiscal year ending March 31, 1999;
(iv) the Minimum Pretax Income amounts to at least $42.0 million for the
fiscal year ending March 31, 2000;
(v) the Minimum Pretax Income amounts to at least $53.0 million for the
fiscal year ending March 31, 2001;
(vi) commencing on May 9, 1996 and ending 18 months thereafter, the bid
price of the Company's Common Stock averages in excess of $48.00 per share
(subject to adjustment in the event of any reverse stock splits or other similar
events) for 60 consecutive business days;
(vii) commencing November 9, 1997 and ending 36 months thereafter, the bid
price of the Company's Common Stock averages in excess of $96.00 per share
(subject to adjustment in the event of any reverse stock splits or other similar
events) for 90 consecutive business days; or
(viii) during the periods specified in (vi) or (vii) above, the Company is
acquired by or merged into another entity in a transaction in which the value of
the per share consideration received by the stockholders of the Company on the
date of such transaction or at any time during the applicable period set forth
in (vi) or (vii), respectively, equals or exceeds the applicable levels set
forth in (vi) or (vii), respectively.
The bid price amounts set forth above are subject to adjustment in the
event of any stock splits, reverse stock splits or other similar events.
Holders of Escrow Securities have agreed not to sell, transfer,
hypothecate, negotiate, pledge, assign, encumber or otherwise dispose of any or
all of the Escrow Securities unless and until (A) the Company shall have given
notice that the conditions for the release of the Escrow Securities set forth in
Paragraphs (a) and (b) above are met, or (B) such disposition is (i) proposed in
connection with an agreement by which the
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Company is to be acquired by or merged into another entity in which the
consideration paid by the acquiror per share of the Company's stock is no less
than 80% of the minimum consideration required by Paragraphs (a)(vi) and (vii)
above as to a disposition of up to 50% of the Escrow Securities or by Paragraphs
(b)(vi) and (vii) above as to a disposition of up to 100% of the Escrow
Securities and (ii) approved by at least 80% of the votes cast, in person or by
proxy, by holders of the Common Stock eligible to vote on such matter excluding
the shares held by the holders of the Escrow Securities, provided that the
holders of at least 50% of the Common Stock (excluding the shares held by the
holders of the Escrow Securities) actually vote on such matter, in person or by
proxy, or are present, in person or by proxy, at the meeting at which the vote
takes place. If the Company is acquired by or merges into another company that
thereafter owns all of the outstanding stock of the Company except for the
Escrow Securities, at any time from and after the consummation of the merger or
acquisition, holders of Escrow Securities desiring to dispose of their Escrow
Securities will be permitted to do so if the acquiror gives notice as to
conditions being met in Paragraphs (a) and (b) above or consents in writing to
the disposition, but no vote or consent of the former stockholders of the
Company will be required.
Any money, securities, rights or property distributed in respect of the
Escrow Securities, including any property distributed as dividends or pursuant
to any stock split, merger, recapitalization, dissolution, or total or partial
liquidation of the Company, shall be held in escrow until release of the Escrow
Securities. If none of the applicable Minimum Pretax Income or bid price levels
set forth above have been met by July 15, 2001, the Escrow Securities, as well
as any dividends or other distributions made with respect thereto, will be
cancelled and contributed to the capital of the Company. The Company expects
that the release of the Escrow Securities to officers, directors, employees and
consultants of the Company will be deemed compensatory and, accordingly, will
result in a substantial charge to reportable earnings, which would equal the
fair market value of such shares on the date of release. Such charge could
substantially increase the loss or reduce or eliminate the Company's net income
for financial reporting purposes for the period or periods during which such
shares are, or become probable of being, released from escrow. Although the
amount of compensation expense recognized by the Company will not affect the
Company's total shareholders' equity, it may have a negative effect on the
market price of the Company's securities.
The Minimum Pretax Income and bid price levels set forth above were
determined by negotiation between the Company and the Underwriter of the IPO
prior to the IPO and should not be construed to imply or predict any future
earnings by the Company or any increase in the market price of its securities.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In October 1996, the Company acquired all of the outstanding capital stock
of ViComp Technology, Inc. ("ViComp") for 491,253 shares (the "Acquisition
Shares") of the Company's Common Stock (the "ViComp Acquisition"). Dr. Edmund
Y. Sun, the Company's Chairman of the Board and Chief Executive Officer, was a
co-founder of ViComp and owned 57.3% of the outstanding capital stock of ViComp
(for which he had paid a total of $1,000,000 in September 1995 and January 1996)
at the time of the ViComp Acquisition. The Company issued to Dr. Sun 281,520
shares of the Company's Common Stock for his ViComp capital stock in the ViComp
Acquisition (57.3% of the total 491,253 shares of Common Stock issued in the
ViComp Acquisition).
All of the Acquisition Shares issued to Dr. Sun and 10% of the Acquisition
Shares issued to the other former ViComp stockholders have been deposited in
escrow, are subject to forfeiture and cancellation under certain circumstances
and may not be publicly resold until released from escrow. Dr. Sun and the
other holders of the Acquisition Shares were granted certain demand and
piggyback registration rights under a registration rights agreement pursuant to
the terms of the ViComp Acquisition, with Dr. Sun and such other holders
exercising their demand registration rights in May 1997 and the Company filing a
registration statement covering all of the shares issued in the ViComp
Acquisition with the Securities and Exchange Commission in July 1997.
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The ViComp Acquisition was unanimously approved by the disinterested
members of the Company's Board of Directors, and the Company's Board of
Directors was advised by Sutter Securities Incorporated that the ViComp
Acquisition is fair from a financial point of view to the Company's stockholders
other than Dr. Sun.
The Company purchased approximately $7,178,703 and $809,000 of inventory
from C-Cube during the fiscal year ended March 31, 1997 and the year ended
December 31, 1995, respectively. Dr. Sun is the founder and was a significant
shareholder of C-Cube.
In February 1995, the Company borrowed $500,000 from Dr. Sun. The loan was
secured by the assets of the Company and bore interest at the prime rate plus 1%
per annum. In October 1995, the Company amended the terms of the loan to allow
for additional borrowings of $1,500,000 at the same interest rate. In December
1995, Dr. Sun converted the $2,000,000 of principal plus approximately $57,000
of accrued interest into 1,335,949 shares of Series B Preferred Stock of the
Company at $1.54 per share. These shares were converted into 1,335,949 shares
of Common Stock upon the closing of the IPO in May 1996.
Hyundai purchased 3,247,473 shares of the Company's Series A Preferred
Stock for approximately $5,000,000 and 649,526 shares of the Company's Series B
Preferred Stock for approximately $1,000,000 from the Company in January 1994
and April 1995, respectively. In connection with such purchases, Hyundai was
given the right to designate a director, a right of first refusal relating to
sales of the Company's securities and certain registration rights. Such right
of first refusal terminated in connection with the IPO and Hyundai waived its
registration rights for 13 months following the closing of the IPO in May 1996.
Hyundai's Series A Preferred Stock and the Series B Preferred Stock were
converted into 3,896,999 shares of Common Stock upon the closing of the IPO in
May 1996.
In 1993, Hyundai and the Company entered into agreements relating to the
Company's development of a consumer karaoke player, a karaoke jukebox, encoding
machines and a karaoke network system. These agreements were subsequently
amended in 1994 in connection with the Company and Hyundai agreeing to a
manufacturing relationship for karaoke jukebox players. The Company and Hyundai
subsequently entered into the 1995 Hyundai Technical Assistance and License
Agreement which subsumed part of the agreements entered into in 1993 and
obligated the Company to develop MPEG-2 compressor products.
In March 1996, the Company entered into an employment agreement with Dr.
Sun and a consulting and employment agreement with Mr. Pfannkuch. See
"Executive Compensation--Employment and Consulting Agreements."
In October 1996, the Company removed Janis Gemignani as the Company's Vice
President, Secretary and Chief Financial Officer. Pursuant to a Settlement
Agreement and General Releases between Ms. Gemignani and the Company, the
Company agreed, in connection with the settlement of certain actions brought by
Ms. Gemignani in connection with her removal, to retain Ms. Gemignani as a
consultant for a period of twelve months commencing February 4, 1997, at a fee
of $15,000 per month.
Mr. Troy is a member of Troy & Gould Professional Corporation, a law firm
which was retained by the Company during the fiscal year ended March 31, 1997,
and has been retained to provide services for the current fiscal year.
Mr. Smith provided consulting services to the Company during the fiscal
year ended March 31, 1997, pursuant to which he received fees of $6,000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Amendment No. 1 to be signed on its behalf by
the undersigned, thereunto duly authorized.
DIGITAL VIDEO SYSTEMS, INC.
Date: July 29, 1997 By:/s/ Dr. Edmund Y. Sun
----------------------------
Dr. Edmund Y. Sun
Chief Executive Officer
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